CD Rates Could Change in 2025. Will They Still Be a Good Buy?

High annual percentage yields (APYs) caused unprecedented interest in certificates of deposit (CDs) in 2024, as many banks offered rates of 5% or better. But how will CDs perform in 2025?

There’s no guarantee, but the best CD rates will likely decrease in 2025. Despite that, rates may remain competitive for some time to come, though it’s always wise to keep your eye on other options, like high-yield savings accounts and brokerage accounts.

Key Takeaways

• CD rates have been falling as the Fed cuts the federal funds rate.
• Further rate cuts are expected in 2025, although the current outlook is less dramatic than originally predicted.
• CD rates are expected to decline in 2025, but some institutions will still offer above-average CD rates. 

Why CDs Can Still Be a Good Buy

In 2024, many banks and credit unions offered CDs with rates over 5.00%. Although rates are expected to decline, CDs may still be valuable for many consumers. Thanks to the amount of banking competition, including many digital banks with lower operating costs, some institutions will continue to offer CDs with significantly higher-than-average interest rates. The best CDs often rival or beat the best high-yield savings account rates.

CDs, unlike savings accounts, allow you to lock in a specific APY for a specific period of time. That means that even if CD rates are headed down, you can lock in a relatively high rate today and keep it for the duration of the term. That’s not true for savings accounts.

But CDs have a catch—you get to keep that interest rate, and in return you must keep your money in the account for the duration of the term. If you withdraw the money early, you’ll typically pay a hefty early withdrawal penalty.

Why CD Rates Will Likely Go Down Next Year

CD rates tend to follow the Federal funds rate: The rate at which banks borrow and lend to one another. 

The Federal Open Market Committee (FOMC) adjusts the Fed rate to manage inflation and stimulate the economy. In 2024, the FOMC instituted the first rate cuts since 2022, and experts predict that it will continue to cut rates in 2024.

So, CD rates are likely to continue falling in 2025, but not as much as originally expected. The Fed recently curtailed its earlier predictions of how fast the benchmark rate will fall. It originally predicted that the Fed funds rate would reach as low as 3.25% by the end of 2025; the updated prediction sees the rate at 3.75% by year’s end.

Other Savings Tools to Consider for 2025

Besides CDs, other tools can help you grow your money and build wealth in 2025: 

• High-yield savings accounts (HYSAs): A high-yield savings account provides a higher-than-usual APY on your savings. Unlike CDs, money in a savings account is more readily acceptable; there are no penalties for withdrawals (usually), so they’re better for short-term goals and emergency funds. However, HYSA rates will likely decline in 2025 along with the Fed rate cuts.
• Money market accounts (MMAs): Money market accounts are interest-bearing accounts that usually pay higher APYs than savings accounts. Like savings accounts, cash is more accessible than money in a CD, but money market account rates will likely decline in 2025 as well.
• Brokerage accounts: For those with longer-term goals, a brokerage account could be a good alternative to a CD. By investing in a portfolio of stocks, bonds, mutual funds, or exchange-traded funds (ETFs), you could earn a higher return than you could get with a CD or savings account. But to get that better return, you must expose your cash to more risk.